Core & Main(US:CNM) Seeking Alpha·2024-09-10 13:54Company Overview - Core & Main is a US-based distributor of water, wastewater, storm drainage, and fire protection products, operating approximately 335 branches across 48 states [2] - Revenue is generated from direct product sales and integrated services, with a breakdown by product type [2] - Total revenue for 2023 was $6,702 million, showing an increase from $6,651 million in 2022 [3] Recent Performance - Weather disruptions in Q2 2024 resulted in a direct impact of $50 million in lost sales, approximately 3% of total revenue for the quarter [5] - Heavy rainfall and flooding caused delays in construction projects, particularly in underground utility and waterworks operations [6] - A slowdown in commercial project starts is noted, with developers delaying projects due to macroeconomic uncertainties [6] - Steel pipe prices have declined to historic lows, contributing to a 50 basis point drop in total gross margins and a 4.8% decline in adjusted EBITDA [6] - SG&A expenses increased by 12.6% year-over-year, primarily due to costs from recent acquisitions, which were the main driver behind a 5.5% increase in net sales [6] - Interest expenses rose significantly from $22 million in Q2 2023 to $36 million in Q2 2024 due to a $750 million term loan and increased borrowings [6] - Inventory costs increased, leading to a slight decline in gross margins from 26.9% in Q2 2023 to 26.4% in Q2 2024 [6] - Meter product sales surged by 48%, driven by the adoption of smart metering technology [6] Outlook - The share price has declined by 37% since May, with over 15% of this decline occurring during the Q2 earnings release [8] - Despite a solid share buyback program of $500 million, the lack of insider buying activity raises concerns about further share price declines [9] - The company has a manageable debt level, with quick and current ratios above one and a debt to assets ratio of 0.43 [11] - The lack of insider buying following a significant share price drop suggests potential further declines, with a possible support level at $32 [9][11] Conclusion - Core & Main is experiencing headwinds from weather disruptions, inflationary pressures, and declining steel pipe prices, impacting performance [12] - The slowdown in commercial projects due to macroeconomic uncertainties adds further pressure [12] - Despite positive signs from acquisition-driven growth and a solid buyback program, the lack of insider buying activity leads to a Hold rating [12]